What could ‘Brexit’ mean for the airline industry?

With a referendum approaching, and the people of Britain set to decide on whether the country should remain as part of the European Union, there’s been plenty of discussion around the potential implications of ‘Brexit’ on the aviation industry.

Airlines are among those that have benefited the most from EU agreements on open airspace and free movement of people, and a Brexit would undoubtedly raise the need for negotiation between governments to ensure that UK airline’s current access to the skies is maintained.

Should Brexit win the vote, arguably the most significant renegotiation that would need to take place is the UK’s membership of the European Common Aviation Area (ECAA). As an EU member, the UK aviation industry currently benefits from access to the ECAA, defined by bilateral agreements between European countries. There are some non-EU countries which also signed the agreements, back in 2006 (Norway, Iceland and Albania among them).

If the UK were to leave the EU, its airlines would no longer enjoy automatic access to this liberalised market, although the UK might be expected to negotiate continued access.

However, a report from the Centre for Aviation, which takes a comprehensive look at the implications for aviation if the UK leaves the EU, explains that should the UK vote to leave, it would not be guaranteed ECAA status. Membership would be contingent on the UK submitting to EU conditions, as well as also broader EU regulation to do with other areas such as state aid and competition.

The implication here is that if a future non-EU UK wanted to remain part of the ECAA, it would still be bound by EU rules, but would no longer have a voice in shaping them.

Another option for the UK, the report states, could be to negotiate a new UK-EU agreement on a bilateral basis, similar to the agreement on air transport between Switzerland and the EU. However, as the report states, this bilateral agreement also relies on several other trade agreements remaining stable and in place.

After the UK-EU agreements are taken care of, there are still other potential agreements to be brokered; the UK would need to either negotiate continued access to the EU-US open skies agreement, which allows the airlines of both parties to fly from anywhere in the EU to anywhere in the US and vice versa, or make its own agreement with the US. All of these agreements would have to be finalised during a two-year exit period.

Perhaps the most significant impact of Brexit would be that the UK would no longer have the same influence over a large proportion of EU rules and legislation, both aviation and broader issues, that its current status as an EU member state gives it. As Borge Brende, Norway’s foreign minister, has observed, “Our arrangement . . .  is that we have to implement all the EU directives. We are not around the table when these are discussed in Brussels.”

So what do the airlines think?

A number of top players in the industry have spoken out on the issue. Lufthansa CEO Carsten Spohr has been open in his hope that Britain will remain, saying, “I am certain that Brexit would result in lower growth in Europe and that would lead to less demand from customers,” he said, speaking in Duesseldorf in mid-June. “We’re preparing for Brexit just as we would any other possible crisis, and a crisis is how I would describe it. I hope it won’t come to it though.”

Elsewhere, Irish airline Ryanair has also thrown its support behind Remain, with the airline donating money to the campaign. Ryanair CEO Michael O’Leary appeared in London this week alongside Chancellor of the Exchequer George Osborne to promote the case for staying in the EU. O’Leary also warned that the budget airline will scale back British investment if the country votes to leave the European Union.

Willie Walsh, CEO of IAG, and Carolyn McCall, head of easyJet have also stated their support for Britain to remain, with McCall explaining, “We think it would be very difficult for our government to negotiate with 27 other member states to get the flying rights that we have today within the EU,” while Virgin boss, Richard Branson, recently told the BBC of his fear that the consequences of a Brexit would be catastrophic for Britain.

However, a blog written for The Spectator took on McCall’s claim that it would be difficult for the UK to negotiate rights, stating, “The Norwegian model could prove a useful boon to Brexit campaigners urging businesses not to worry about life outside of Europe. Norway’s main budget airline, Norwegian Airlines, is thriving: it’s the third biggest budget airline in Europe and has grown in size – both in terms of the number of planes it has as well as passenger numbers – for each of the last 11 years. Although it might be smaller than easyJet, it seems difficult to ignore Norwegian as an example of an airline doing well outside of the EU.”

It’s not only the heads of European airlines that are weighing in on the debate. The head of Dubai-based airline, Emirates, expressed concern earlier this month about the impact of travel across Europe if Britain leaves the EU. Speaking at the annual IATA airline industry meeting in Dublin, airline president Tim Clark said, “My concern is what will happen in the rest of the EU. Instability means lowering demand, lowering in demand means less people travelling on aeroplanes. How long that would last, I don’t know.”

However, other carriers have spotted that Brexit could open opportunities for other nations. For Irish carrier Aer Lingus, chief executive Stephen Kavanagh said a Brexit could offer growth. “If Heathrow or the UK becomes difficult to transfer through from the European perspective, then that again accelerates the opportunity for us in expanding Irish airports as a gateway,” he said.

Planning for Brexit

There’s no doubt that, whether you believe Brexit will benefit or disadvantage UK companies, a UK exit will have a significant impact on both UK airlines and also airlines from other EU states for whom the UK is an important market.

Whichever way the people of Britain decide to vote on 23 June, the report from the Centre from Aviation is certain that there contingency plans need to be in place. “Either way,” the report states, “the UK government will need to start planning for the exit the minute the referendum is concluded, if the outcome is a vote to leave the EU.”

Main photo credit: © British Airways